UNIVERSITY ENTREPRENEURSHIP AND TECHNOLOGY TRANSFER: PROCESS, DESIGN, AND INTELLECTUAL PROPERTY

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2 UNIVERSITY ENTREPRENEURSHIP AND TECHNOLOGY TRANSFER: PROCESS, DESIGN, AND INTELLECTUAL PROPERTY i

3 ADVANCES IN THE STUDY OF ENTREPRENEURSHIP, INNOVATION AND ECONOMIC GROWTH Series Editor: Gary D. Libecap Recent Volumes: Volume 10: Legal, Regulatory and Policy Changes that Affect Entrepreneurial Midsize Firms, 1998 Volume 11: The Sources of Entrepreneurial Activity, 1999 Volume 12: Volume 13: Volume 14: Entrepreneurship and Economic Growth in the American Economy, 2000 Entrepreneurial Inputs and Outcomes: New Studies of Entrepreneurship in the United States, 2001 Issues In Entrepreneurship: Contracts, Corporate Characteristics and Country Differences, 2002 Volume 15: Intellectual Property and Entrepreneurship, 2004 ii

4 ADVANCES IN THE STUDY OF ENTREPRENEURSHIP, INNOVATION AND ECONOMIC GROWTH VOLUME 16 UNIVERSITY ENTREPRENEURSHIP AND TECHNOLOGY TRANSFER: PROCESS, DESIGN, AND INTELLECTUAL PROPERTY EDITED BY GARY D. LIBECAP The University of Arizona, USA 2005 Amsterdam Boston Heidelberg London New York Oxford Paris San Diego San Francisco Singapore Sydney Tokyo iii

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6 CONTENTS LIST OF CONTRIBUTORS INTRODUCTION Gary D. Libecap vii ix ANALYZING THE EFFECTIVENESS OF UNIVERSITY TECHNOLOGY TRANSFER: IMPLICATIONS FOR ENTREPRENEURSHIP EDUCATION Donald S. Siegel and Phillip H. Phan 1 THE BAYH-DOLE ACT AND HIGH-TECHNOLOGY ENTREPRENEURSHIP IN U.S. UNIVERSITIES: CHICKEN, EGG, OR SOMETHING ELSE? David C. Mowery 39 THE KNOWLEDGE SPILLOVER THEORY OF ENTREPRENEURSHIP AND TECHNOLOGICAL DIFFUSION David B. Audretsch, Max Keilbach and Erik Lehmann 69 CURIOSITY-DRIVEN RESEARCH AND UNIVERSITY TECHNOLOGY TRANSFER Katherine J. Strandburg 93 THE IRRATIONALITY OF SPECULATIVE GENE PATENTS David E. Adelman 123 v

7 vi CONTENTS COMMERCIALIZING UNIVERSITY RESEARCH SYSTEMS IN ECONOMIC PERSPECTIVE: A VIEW FROM THE DEMAND SIDE Brett M. Frischmann 155 PROS AND CONS OF FACULTY PARTICIPATION IN LICENSING Jerry G. Thursby and Marie C. Thursby 187 INTRODUCING TECHNOLOGY ENTREPRENEURSHIP TO GRADUATE EDUCATION: AN INTEGRATIVE APPROACH Marie C. Thursby 211 AN INTEGRATED MODEL OF UNIVERSITY TECHNOLOGY COMMERCIALIZATION AND ENTREPRENEURSHIP EDUCATION Arthur A. Boni and S. Thomas Emerson 241 ORGANIZATIONAL MODULARITY AND INTRA-UNIVERSITY RELATIONSHIPS BETWEEN ENTREPRENEURSHIP EDUCATION AND TECHNOLOGY TRANSFER Andrew Nelson and Thomas Byers 275

8 LIST OF CONTRIBUTORS David E. Adelman David B. Audretsch Arthur A. Boni Thomas Byers The University of Arizona, Tucson, AZ, USA Ameritech Chair of Economic Development, Indiana University, Institute for Development Strategies, Bloomington, IN, USA Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, USA Stanford University, Stanford, CA, USA S. Thomas Emerson Tepper School of Business, Carnegie Mellon University, Pittsburgh, PA, USA Brett M. Frischmann Max Keilbach Erik Lehmann Gary D. Libecap David C. Mowery Andrew Nelson Phillip H. Phan Donald S. Siegel Loyola University Chicago School of Law, Chicago, IL, USA Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Research Group, Jena, Germany Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Research Group, Jena, Germany The University of Arizona, Tucson, AZ, USA University of California, Berkeley, Berkeley, CA, USA Stanford University, Stanford, CA, USA Rensselaer Polytechnic Institute, Troy, NY, USA Rensselaer Polytechnic Institute, Troy, NY, USA vii

9 viii LIST OF CONTRIBUTORS Katherine J. Strandburg Jerry G. Thursby Marie C. Thursby DePaul University, College of Law, Chicago, IL, USA Department of Economics, Emory College, Emory University, Atlanta, GA, USA College of Management, Georgia Institute of Technology, Atlanta, GA, USA

10 INTRODUCTION American universities, indeed, universities throughout the world, are facing increased demand to share the knowledge developed within their campuses. Historically, students pass knowledge to the greater society. But since at least the 1960s, the university s research role has dramatically increased, with more and more resources devoted to basic and applied research in the physical and biological sciences, engineering, humanities, social sciences, and management fields. Not all of this research can be transmitted through the graduation of students. Research on basic scientific and life processes and engineering also eventually results in applications in new products and processes. Given the large investment in university research, society naturally seeks greater returns through patents, licensing, and new business starts. Local and state governments, especially, look to universities for job creation and economic growth through greater knowledge transfer. In addition to these external demands, administrators and faculty within universities grow more interested in the potential from knowledge transfer. They believe students have better chances for employment with experience in commercialization; they believe that revenues from royalties and other licensing revenue can augment declining government support of their academic programs; they believe that the academic reputation of their institutions can be enhanced with greater success in knowledge transfer; and finally, they believe that all levels of government will be more supportive of the institution if it reveals a clear interest and success in knowledge transfer. But internal demand does not come only from administrators and faculty. Students want greater emphasis on the practical application of their university-based knowledge. They want greater training in commercialization, knowledge that is applicable to real-world problems and hence will be demanded by employers. Finally, they have intellectual demands to see how university ideas might be modified to meet economic and social needs. In the face of growing external and internal demands for knowledge transfer, universities have responded by investing in augmented technology transfer or licensing offices, adding courses and programs in commercialization, and perhaps most importantly, broadening administrative and academic support for knowledge transfer. The emphasis is no longer solely on ix

11 x INTRODUCTION the ivory tower. The bioscience and engineering fields, in particular, express interest in knowledge transfer, and more specifically, technology transfer, because of the perceived opportunities for patenting and licensing revenues. Entrepreneurship programs and curricula across colleges and universities worldwide predates the new interest in knowledge transfer. Entrepreneurship classes that emphasize the process of business plan development and new launch of business ideas have become some of the most popular in the academy. Regional, national, and international business plan competitions allow student teams to practice their presentations, to defend them against the critical review of judges, and to obtain exposure among angel investors and venture capitalists. Entrepreneurship programs have grown beyond business school, which was their traditional home, to engineering, life sciences, agriculture, medical, and humanities programs. Indeed, as entrepreneurship enrollments have grown, there has been a natural interest in knowledge transfer. New university ideas with potential commercial application are especially attractive to student teams as the basis for their business plans and possible launches. There is greater interaction between entrepreneurship faculty, students, and those in science and engineering. University licensing and technology transfer offices are becoming more involved in entrepreneurship activities. Given all of this progress, it seemed appropriate to gather academics involved in entrepreneurship education, officers of technology transfer programs, and those who study the process and problems of university-based knowledge transfer, to discuss what synergies exist and how entrepreneurship and technology transfer might be promoted more effectively. Using a grant from the Ewing Marion Kauffman Foundation of Kansas City, the Karl Eller Center at the University of Arizona commissioned 10 papers to examine the topics of technology transfer, intellectual property, and entrepreneurship program development. The papers were presented at the White Stallion Ranch, northwest of Tucson, January 20 23, Participants are listed at the end of the Introduction, along with the conference program. The first paper, Chapter 1 of this volume, by Donald S. Siegel and Phillip H. Phan, Rensselaer Polytechnic Institute, Analyzing the Effectiveness of University Technology Transfer: Implications for Entrepreneurship Education, begins by highlighting some of the major technologies developed from university laboratories that resulted in the creation of new industries. These include the 1940s development of the electronic calculator at the University of Pennsylvania that led to the computer industry, the 1960s launch of fiber optics at MIT that stimulated telecommunications, the 1970s investigations in DNA at Stanford and UC Berkeley that provided the basis for the

12 Introduction xi biotechnology industry, the 1980s supercomputing at the University of Illinois that advanced the Internet, and the sequencing of DNA/the Human Genome at Cal Tech and Johns Hopkins that advanced pharmacogenomics. These are examples of major hits for technology transfer, but Siegel and Phan are concerned with the process underlying more routine technology transfer. They identify the principal agents and institutions for technology transfer as university scientists, industry scientists who interact with them, industry university research centers, university technology transfer offices, science parks, incubators, firms that interact with universities, and venture capital firms. They identify indicators of technology transfer output/ performance as invention disclosures, patents, licensing agreements, licensing revenue, research productivity of both industry and university scientists, startup formation, the survival of startups, and employment growth. Summarized, these metrics illustrate patterns in technology transfer. Siegel and Phan provide some key stylized facts: patents are not that important for certain technologies/industries, many scientists do not disclose inventions, faculty involvement is critical, universities rely on outside lawyers to negotiate with firms, technology transfer office staff add significant value to the transfer process, no strong evidence supports returns to scale, private universities are somewhat more productive, and incentives in the royalty distribution formula and organizational structure matter in encouraging faculty in technology transfer. They also present some impediments to technology transfer, such as information and cultural barriers between universities and firms, especially small firms; insufficient rewards for faculty in technology transfer; high staff turnover in technology transfer offices; and, of import to the conference, the education component, for both faculty and students, in the process of entrepreneurship and business plan development. Siegel and Phan conclude their chapter with suggestions for promoting university technology transfer to include, among other things, the development of interdisciplinary entrepreneurship programs that attend to technologies. Chapter 2, by David Mowery, University of California, Berkeley, The Bayh Dole Act and High-Technology Entrepreneurship in U.S. Universities: Chicken, Egg, or Something Else? provides a rich historical background on U.S. universities and innovation. Mowery notes that the university share of basic research in the United States has grown from 33% in 1953 to 60% in Universities often are associated with the growth of regional high-tech clusters populated by entrepreneurial firms and driven by new innovations. American universities influence industrial innovation through the training of scientists and engineers; publishing

13 xii INTRODUCTION research; consulting with the private sector; interacting informally and in conferences with industry researchers; obtaining patents and licenses for university inventions; and establishing new firms led by faculty, graduates, and other researchers. Since the 1970s patents from university research has grown, particularly in biomedical fields. Mowery provides long-term data on the share of university patents among all domestic assigned patents, and the record reveals an upswing after 1975, with more or less continuous growth since that time. Also, since 1978, drug/medical patents have outpaced those in chemicals, electrical/electronic, and mechanical. With this information, Mowery asks if the Bayh-Dole Act of 1980, which gave universities greater authority over licensing terms from federally funded research, was a major source of this observed growth? He conjectures that the Bayh Dole Act was more likely the effect, rather than the cause, of increased patenting. Universities such as Purdue, Stanford, MIT, Harvard, and Columbia lobbied for greater flexibility and consistency in federal policy just as their research and patenting activities were rising. Mowery turns to the question of how university IPR policy has affected entrepreneurial firms. He notes that there has been little empirical research in this area, but summarizes some available data. In 2002, 14 16% of university licensees were faculty founded startups, and 50 54% of licensees were small, less than 500 employees these firms were not established to commercialize the specific invention. Patents may play a relatively secondary role in commercialization in non-biomedical fields. To illustrate the relationship between university patenting and licensing policies and entrepreneurial firms, Mowery provides five case studies, some of which were founded as vehicles for technology development and acquisition by other firms rather than technology commercialization. There was substantial variation in the level and nature of inventor involvement in commercialization. In three of the cases, the firms began work on similar technologies without licenses. These examples show the two-way flow of knowledge between the university and industry, and the importance of personnel movement between the two as part of knowledge transfer. The cases reveal little evidence that patenting/ licensing activities were associated with delays in publication of academic research advances. Mowery also examines university IPR polices. He points out that universities have unrealistic expectations regarding the level of licensing revenues. Between 1999 and 2003, the entire University of California system had net institutional revenues of only $15 million a year out of an annual budget of nearly $3 billion. He addresses issues of how the management of IPR policies can facilitate licensing and entrepreneurial growth.

14 Introduction xiii Chapter 3, The Knowledge Spillover Theory of Entrepreneurship and Technological Diffusion, by David Audretsch, Max Keilbach, and Erik Lehmann of the Max Planck Institute for Research on Entrepreneurship, Growth, and Public Policy, and Indiana University, provides more detailed empirical evidence on knowledge spillover using German data. Audretsch, Keilbach, and Lehmann begin by asking, what is entrepreneurship? The definitions they provide emphasize creating new products, processes, services, and organizations through the process of opportunity discovery. With this as background, the authors explore how knowledge is spilled over from research centers to the broader society to provide the basis for endogenous growth. They outline an endogenous growth model with knowledge externalities. They hypothesize that entrepreneurship will be greater in the presence of higher investments in new knowledge, and that entrepreneurship will be spatially located within close proximity to knowledge sources. Audretsch, Keilbach, and Lehmann estimate the model to test the hypotheses using German data across local political jurisdictions. They examine the determinants of startups by population and economic growth across the regions. They find that entrepreneurship as reflected in startups is positively influenced by investments in knowledge, all else being equal, and that entrepreneurship in turn is an important factor in economic growth. The chapter closes with a discussion of policy implications that may arise if supporting a spillover of knowledge. Chapter 4 is the first of three on intellectual property issues associated with university-based research and commercialization. Katherine J. Strandburg, DePaul College of Law, writes Curiosity-Driven Research and University Technology Transfer. In this chapter, Strandburg asks two questions will university patenting promote commercialization of basic research spin-offs, and does university patenting threaten traditional scientific norms and basic research? She is concerned that greater emphasis on commercialization and increased licensing revenues might distort the traditional university focus on curiositydriven research as compared to commercially driven research. Strandburg argues that basic research is socially valuable and worth protecting and promoting in developing university technology transfer policies. She notes that markets will fail to provide the socially optimal demand structure and that universities, using government funding, are important sources of basic research. She describes a model of basic academic research, whereby curiosity determines the research selected by scientists, and the peer review process disciplines for quality. She argues that basic scientists are selfselected by a taste for research, and are thus less likely to be interested in

15 xiv INTRODUCTION short-term commercial goals. Among this group of scientists exist norms that include communalism, universalism, disinterestedness, skepticism, invention, and independence. After elaborating on each of these norms, Strandburg asks if increased university emphasis on patenting/tech transfer will pose a threat. Among her concerns are whether industry funding and royalties will influence the kinds of research undertaken. She describes some predictions of her academic research model, including a lack of patenting. She also outlines some university practices that can be adopted to protect basic research, including experimental use exemptions in potential patent infringements. Chapter 5, The Irrationality of Speculative Gene Patents, by David E. Adelman, James E. Rogers College of Law at the University of Arizona, continues examination of university IP policies. Adelman notes that biotech is the center of fears about proliferating patenting by universities and the private sector. The concern is that aggressive patenting is undermining the scientific norms, as outlined by Strandburg, and creating a patent anticommons. He describes a pronounced surge in the patent of research tools that were previously more freely available in the public domain, and a significant rise in defensive patenting, particularly in the genomic sciences. Adelman argues that speculative biotech patenting, particularly of genetic probes, putative drug targets, and uncharacterized genetic sequences, is irrational. To develop his argument, he outlines the features of biomedical science and R&D: there is a complexity of disease processes with numerous genes involved and a combination of genetic and environmental causes; there are large uncertainties with weak causal associations between specific genes, and most diseases and random processes often play a significant role. With a proliferation of drug targets and genetic data, the challenge is to use research tools to discover viable products at a time when the drug pipeline has actually declined for almost a decade. R&D in biotech is shaped by high costs and uncertainties of discovery versus the low cost and ease of copying. Biological complexity mitigates the potential for patents to create broad monopolistic power. Genomic methods have generated a large number of research tools. As a result, Adelman concludes that there are so many biotech, problem-specific research tools and such high levels of uncertainties of payoff that patenting makes little sense. The current state of biotech research and development represents the worst conditions for strategic patenting the number of potential patents is large and the value highly uncertain. The complexity of human biology creates a further disincentive for speculative patenting. The redundancy and intricacy of biological processes will enable scientists to circumvent existing problem-specific patents.

16 Introduction xv Enforcement of problem-specific research tools will be prohibitively costly. In the absence of an infringing product or sale, infringing uses will be very difficult to identify and the low value of speculative patents will eliminate the incentive to invest in patent enforcement. Accordingly, Adelman argues for a tempered university patent policy in biotech. Chapter 6, Commercializing University Research Systems in Economic Perspective: A View from the Demand Side, by Brett M. Frischmann, Loyola University Law School, is the last of the three chapters on university IP trends and technology transfer. Frischmann argues that the issues surrounding commercialization of university research are quite similar to those surrounding the commercialization of other mixed infrastructure, such as the Internet. As with Strandburg, Frischmann is concerned about the impact of technology transfer and emphasis on greater royalties on the traditional basic science environment. Universities have to decide how to allocate infrastructure investment that may be directed toward application and not basic research. He notes that universities may execute a variety of different strategies for promoting entrepreneurship, each coinciding with different degrees of participation in the commercialization process. Universities can be entrepreneurs, support entrepreneurs, and/or educate entrepreneurs. The basic point, according to Frischmann, is that universities need not be commercial entrepreneurs in order to teach entrepreneurship or provide students with entrepreneurial opportunities and experience. Indeed, an active, entrepreneurial university may offer hands-on, practical training in entrepreneurship for students in the fields of business and science and technology. Successful commercialization of university research requires close collaboration among participants in the university science and technology research system and with faculty, students, and administrators. An interdisciplinary entrepreneurship program provides an excellent environment for commercializing research and educating entrepreneurs. Universities may also opt to be less entrepreneurial while still being involved in the commercialization process. They may leave the post-patent efforts to licensees or spin-off companies, external investors and entrepreneurs. The need to coordinate the efforts of scientists, technologists, innovators, investors and entrepreneurs still provides ample opportunities for entrepreneurship training. Finally, entrepreneurship need not involve commercial enterprise. Universities that decide not to make commercialization a priority and instead aim to sustain their science and technology research systems as mixed infrastructure may still advance entrepreneurship education through open source, community-based enterprise projects and internships with local businesses.

17 xvi INTRODUCTION Chapter 7 is the first of four chapters on the links between tech transfer and university entrepreneurship. Pros and Cons of Faculty Participation in Licensing, is by Jerry G. Thursby, Emory University, and Marie C. Thursby, Georgia Institute of Technology. The Thursbys begin by stating the importance of university research for industrial innovation. Although university licensing has increased dramatically, there remains a debate over faculty involvement as allowed by the Bayh-Dole Act. Proponents of licensing argue that its incentives underwrite the development needed for many technologies that are being commercialized, while critics argue that publication alone is sufficient for transfer and that licensing diverts faculty from more basic research. The Thursbys try to bring some needed empirical evidence to the debate. According to their industry survey, disclosures tend to be concentrated in science, engineering and medicine. Only 40% of disclosures lead to licenses, and less than half of these ever generate income because so many are very early in development. Indeed, the top 5 income generating licenses bring in 76% of total university licensing incomes. Because of the embryonic nature of university inventions their licenses had a higher failure rate than non-university technologies. About half of the failures were due to the technology. Fifty-two percent of university inventions were for new product development and only 9% for process improvement. The survey found little use of patenting to block entry by rivals, again probably because of the early stage of university technologies. Using a large survey data set of 3,342 faculty at 6 major universities over up to 17 years, the authors find that faculty involvement may be quite limited. Over 64% of faculty never disclosed discoveries and about 15% disclosed only once. Involvement in licensing appears to have had little impact on the nature of research with the ratio of basic research publications to all publications roughly constant over time. To raise faculty awareness there must be improved understanding of applications of their research through commercialization. There also must be greater interaction between faculty and those involved in commercialization, including technology transfer office personnel, angel investors, and officers of firms. The authors describe the advantages of faculty involvement in licensing, which include potentially greater disclosures and royalty income, and they outline the disadvantages which include possible compromises of traditional research agendas. The authors provide evidence to shed light on these controversial issues. They also examine the factors that encourage or discourage faculty involvement. In conclusion they find little diversion of faculty research agendas. The increase in licensing lies less with changes in faculty research and more with changes in the interests of the university central administrations.

18 Introduction xvii Chapter 8, Introducing Technology Entrepreneurship to Graduate Education: An Integrative Approach, by Marie Thursby, Georgia Tech, describes the very successful program underway at Georgia Tech and Emory. She argues that successful technology commercialization requires the integration of scientific and engineering expertise with knowledge of management, law, economics, and public policy. Accordingly, the entrepreneurship program centers around student teams that investigate the commercialization of their business plan research. The targeted students include PhDs in science and engineering, management and economics, and MBA and law students. Five factors are included in PhD training managing R&D for business growth, balancing long-term and short-term R&D, integrating R&D and business strategy, making innovation happen, and assessing productivity. For MBA and law students, the emphasis is improved understanding of the technologies. These program objectives are addressed in the Technological Innovation: Generating Economic Results (TI:GER) program. The interdisciplinary program outlined in the chapter includes classes, research, theses, clinics and internships. Professor Thursby provides outlines of the courses offered, their sequences, and integration across the student groups. Research objectives also are described. Chapter 9, An Integrated Model of University Technology Commercialization and Entrepreneurship Education, by Arthur A. Boni and S. Thomas Emerson, Carnegie Mellon University, outlines a similar program linking entrepreneurship and technology transfer. The authors describe university sources of technology, processors of technology, and the institutional structure and community through which technology transfer occurs. They then describe the external community involved, including angel investors, VCs, legal and accounting firms, incubators, trade organizations, and state and local governments. With this background, Boni and Emerson describe the importance of aligning the constituencies to integrate university resources and to interface with external groups to better transfer knowledge. Their entrepreneurship program is at the center of this effort. It involves a business school and tech transfer office alliance to identify faculty and technologies, to address IP problems, and to locate appropriate commercial partners. The business school educates and supports entrepreneurs at the MBA level, undergraduate and non-mba levels. There is interlinkage with technologists on campus in business plan development. For national exposure, the university supports various business plans competitions. Boni and Emerson conclude with case examples of recent successful launches based on university technology.

19 xviii INTRODUCTION Chapter 10, Organizational Modularity and Intra-University Relationships between Entrepreneurship Education and Technology Transfer, by Andrew Nelson and Thomas Byers, Stanford University, describes Stanford s technology licensing and entrepreneurship education interface through the engineering school. Nelson and Byers summarize the growth in patent filings, licenses, and royalty income at Stanford. They also outline the growth in entrepreneurship education and how these two are linked. Given the decentralized nature of Stanford, networks are critical, and the authors describe the networks that have developed to promote technology transfer and entrepreneurship. At the conclusion of this chapter s conference presentation a number of issues were discussed by the group regarding the interface between entrepreneurship and knowledge transfer. Key objectives were to place entrepreneurship and knowledge transfer within the university s teaching, research, and outreach missions and this seem natural to do. The group also emphasized the notion of knowledge transfer. Potentially valuable products, processes, and services can come from other parts of campus beyond the life sciences and engineering programs. The integration of interdisciplinary programs is important and faculty and administration involvement is essential in building interfaces with the external community for successful knowledge transfer.

20 Introduction xix LIST OF CONFERENCE PARTICIPANTS David E. Adelman James E. Rodgers College of Law, The University of Arizona David B. Audretsch Institute for Development Strategies, Ameritech Chair of Economic Development, Indiana University Arthur A. Boni Jones Center for Entrepreneurship, Carnegie Mellon University Tom Byers Management Science and Engineering, Stanford University Gary Cadenhead Center for Entrepreneurship, The University of Texas-Austin S. Thomas Emerson Director, Donald H. Jones Center for Entrepreneurship, Carnegie Mellon University Brett M. Frischmann Loyola University, Chicago School of Law Sherry Hoskinson Karl Eller Center, The University of Arizona James Jindrick Karl Eller Center, The University of Arizona Patrick L. Jones Office of Technology Transfer, The University of Arizona Gary D. Libecap NBER, The University of Arizona Anthony Mendes Academy of Entrepreneurship, University of Illinois, Urbana-Champagne Lesa Mitchell Technology Transfer, Ewing Marion Kauffman Foundation David C. Mowery Walter A. Haas School of Business, University of California, Berkeley Andrew Nelson Stanford University Joann Rockwell Karl Eller Center, The University of Arizona Donald S. Siegel Technology Transfer Society, Rensselaer Polytechnic Institute Katherine J. Strandburg DePaul University, College of Law Robert Strom Entrepreneurship Research, Ewing Marion Kauffman Foundation Jerry G. Thursby Department of Economics, Emory University

21 xx INTRODUCTION Marie C. Thursby Rob Valle National Bureau of Economic Research and College of Management, Georgia Institute of Technology Cambridge University SESSIONS OVERVIEW SESSION I: TECHNOLOGY TRANSFER Session Background Papers: Analyzing the Effectiveness of University Technology Transfer: Implications for Entrepreneurship Education Donald S. Siegel, Department of Economics and Phillip H. Phan, Lally School of Management & Technology, Rensselaer Polytechnic Institute The Bayh-Dole Act and High-Technology Entrepreneurship in U.S. Universities: Chicken, Egg, or Something Else? David C. Mowery, Haas School of Business, U.C. Berkeley The Knowledge Spillover Theory of Entrepreneurship and Technological Diffusion David B. Audretsch. Max Keilbach, and Erik Lehmann, Max Planck Institute for Research on Entrepreneurship, Growth and Public Policy, Indiana University SESSION 2: INTELLECTUAL PROPERTY Session Background Papers: Curiosity-Driven Research and University Technology Transfer Katherine J. Strandburg, DePaul University College of Law

22 Introduction xxi The Irrationality of Speculative Gene Patents David E. Adelman, James E. Rodgers, College of Law, The University of Arizona Commercializing University Research Systems in Economic Perspective: A View from the Demand Side Brett M. Frischmann, School of Law, Loyola University SESSION 3: UNIVERSITY ENTREPRENEURSHIP Session Background Papers: Pros and Cons of Faculty Participation in Licensing Jerry G. Thursby, Department of Economics, Emory University and Marie C. Thursby, National Bureau of Economic Research & College of Management, Georgia Institute of Technology Organizational Modularity and Intra-University Relationships between Entrepreneurship Education and Technology Transfer Thomas Byers, Stanford Technology Ventures Program, Management Science and Engineering, Stanford University and Andrew Nelson, Ph.D. Candidate, Stanford University An Integrated Model of University Technology Commercialization and Entrepreneurship Education Arthur A. Boni and S. Thomas Emerson Donald H. Jones Center for Entrepreneurship, Tepper School of Business, Carnegie Mellon University Introducing Technology Entrepreneurship to Graduate Education: An Integrative Approach Marie C. Thursby, National Bureau of Economic Research & College of Management, Georgia Institute of Technology Gary D. Libecap

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24 ANALYZING THE EFFECTIVENESS OF UNIVERSITY TECHNOLOGY TRANSFER: IMPLICATIONS FOR ENTREPRENEURSHIP EDUCATION Donald S. Siegel and Phillip H. Phan ABSTRACT We review and synthesize the burgeoning literature on institutions and agents engaged in the commercialization of university-based intellectual property. These studies indicate that institutional incentives and organizational practices play an important role in enhancing the effectiveness of technology transfer. We conclude that university technology transfer should be considered from a strategic perspective. Institutions that choose to stress the entrepreneurial dimension of technology transfer need to address skill deficiencies in technology transfer offices, reward systems that are inconsistent with enhanced entrepreneurial activity, and education/training for faculty members, post-docs, and graduate students relating to interactions with entrepreneurs. Business schools at these universities can play a major role in addressing these skill and educational deficiencies through the delivery of targeted programs to technology licensing officers and members of the campus community wishing to launch startup firms. University Entrepreneurship and Technology Transfer: Process, Design, and Intellectual Property Advances in the Study of Entrepreneurship, Innovation and Economic Growth, Volume 16, 1 38 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: /doi: /S (05)

25 2 DONALD S. SIEGEL AND PHILLIP H. PHAN 1. INTRODUCTION Universities are increasingly being viewed by policymakers as engines of economic growth via the commercialization of intellectual property through technology transfer. Indeed, recent qualitative studies suggest that many research universities have adopted formal mission statements expressing enthusiastic support for technology transfer (Markman, Phan, Balkin, & Gianiodis, 2005) and commercialization. The primary commercial mechanisms for technology transfer are licensing agreements, research joint ventures, and university-based startups. Such activities can also lead to financial gains for the university and other non-pecuniary benefits. As a result, many research institutions are searching for ways to maximize the output and effectiveness of technology transfer. Unfortunately, formal management of an intellectual property portfolio is a relatively new phenomenon for many universities. This has led to considerable uncertainty among administrators regarding optimal organizational practices relating to inventor incentives, technology transfer pricing, legal issues, strategic objectives, and measurement and monitoring mechanisms. We contend that the effectiveness of technology transfer is ultimately determined by the competencies of university scientists, entrepreneurs, technology transfer officers, and other university administrators and their incentives to engage in entrepreneurial activities. The purpose of this chapter is to explore the implications of recent research on university technology transfer for entrepreneurial education. We assume that university administrators are interested in enhancing their effectiveness in this arena, which appears to be the case at many universities. The rise in the rate of technology commercialization at universities has also attracted considerable attention in the academic literature. While most authors have analyzed university patenting and licensing, some researchers have also assessed the entrepreneurial dimensions of university technology transfer. Many authors have examined the institutions that have emerged to facilitate commercialization, such as university technology transfer offices (TTOs), industry university cooperative research centers (IUCRCs), science parks, and incubators. Other chapters focus more directly on agents involved in technology commercialization, such as academic scientists. Specifically, several authors examine the determinants and outcomes of faculty involvement in university technology transfer, such as their propensity to patent, disclose inventions, coauthor with industry scientists, and form university-based startups. These empirical chapters build on the theoretical analysis of Jensen and Thursby (2001), who demonstrate that inventor

26 Analyzing the Effectiveness of University Technology Transfer 3 involvement in university technology transfer potentially attenuates the deleterious effects of informational asymmetries that naturally arise in technological diffusion from universities to firms. In this chapter we review the burgeoning literature on institutions and agents engaged in the commercialization of university-based intellectual property. These studies indicate that institutional incentives and organizational practices play an important role in enhancing the effectiveness of technology transfer. The evidence presented in these chapters also clearly demonstrates the considerable heterogeneity in stakeholder objectives, perceptions, and outcomes relating to this activity. While the degree of variation across institutions makes it somewhat difficult to generalize, we believe that university administrators should consider technology transfer from a strategic perspective. A strategic approach to technology transfer implies that such initiatives should be driven by longterm goals, provided with sufficient resources to achieve these objectives, and monitored for performance. Institutions that choose to stress the entrepreneurial dimension of technology transfer need to address the following issues: Competency and skill deficiencies in many TTOs. Reward systems that are inconsistent with greater entrepreneurial activity. Education/training for faculty members, post-docs, and graduate students in the specifics of the entrepreneurial process, the role of entrepreneurs, and how to interact with the business/entrepreneurial community. Business schools at these institutions can play a major role in addressing these skill and knowledge deficiencies through the delivery of targeted educational programs for technology licensing officers and members of the campus community wishing to launch startup firms (Wright, Lockett, Tiratsoo, Alferoff, & Mosey, 2004; Lockett & Wright, 2004). The remainder of this chapter is organized as follows: in the following section, we analyze the objectives and cultures of the three key stakeholders in university technology transfer: academic scientists, university research administrators, and firms/entrepreneurs. This discussion underscores the complex, boundary-spanning role assumed by the TTO in facilitating technology commercialization. Section 3 presents an extensive review of the literature on university licensing and patenting. The next section explores the literature on an institution that was designed to stimulate and support entrepreneurial activities in the technology transfer process: the science park. Section 5 reviews studies of startup formation at universities. Section 6

27 4 DONALD S. SIEGEL AND PHILLIP H. PHAN presents lessons learned and recommendations relating to entrepreneurial education. 2. OBJECTIVES, MOTIVES, AND CULTURES OF UNIVERSITY TECHNOLOGY TRANSFER STAKEHOLDERS Following Siegel, Waldman, and Link (2003a), we conjecture that the key stakeholders in university technology transfer are academic scientists, technology licensing officers and other university research administrators, and firm-based managers and entrepreneurs who commercialize university-based technologies. In our process model of technology transfer, the technology licensing office assumes the role of a boundary spanner, filling what Burt (1992) terms a structural hole to mediate the flow of resource and information within the network of technology transfer stakeholders (see Fig. 1). In this framework, academic scientists discover new knowledge when conducting funded research projects and, thus, act as suppliers of innovations. Their invention disclosures to the university constitute the critical input in the technology transfer process. Note that the Bayh-Dole Act, the landmark legislation governing university technology transfer, stipulates that faculty members working on a federal research grant are required to disclose their inventions to the TTO. However, field studies (Siegel et al., 2003a; Siegel, Westhead, & Wright, 2003b) and survey research (Thursby, Jensen, & Thursby, 2001) indicate Incubator and Science Park Fees/ Support University Scientist Equity Spinout Disclosure Consulting Royalties/ Sponsored Research Large Firm University Technology Transfer Committee Decision to Patent UTTO Patent Portfolio UTTO Officer Solicit/ License Royalties/ Equity Small Firm Fig. 1. A Process Model of University Technology Transfer. Shaded Areas are Potential Entrepreneurial Actors, Bold Represent Resource Flows.

28 Analyzing the Effectiveness of University Technology Transfer 5 that many faculty members are not disclosing inventions to the TTO. A failure to disclose inventions highlights the importance of licensing officers in the TTO simply eliciting more disclosures. If the faculty member decides to file an invention disclosure with the TTO, the university administration, in consultation with a faculty committee, must decide whether to patent the invention. At this juncture, the TTO attempts to evaluate the commercial potential of the invention. Given the high cost of filing and protecting patents, some institutions are reluctant to file for a patent if there is little interest expressed by industry in the technology. Sometimes firms or entrepreneurs have already expressed sufficient interest in the new technology to warrant filing a patent. If a patent is granted, the university typically attempts to market the invention by contacting firms that can potentially license the technology or entrepreneurs who are capable of launching a startup firm based on the technology. This step highlights the importance of the technology licensing officer s personal networks and their knowledge of potential users of the technology. Faculty members may also become directly involved in the licensing agreement as technical consultants or as entrepreneurs in a university spin-out. Indeed, Jensen and Thursby (2001) outline a theoretical model, suggesting that faculty involvement in the commercialization of a licensed university-based technology increases the likelihood that such an effort will be successful. Licensing agreements entail either upfront royalties, royalties at a later date, or equity in a startup firm launched to commercialize the technology. Within the context of our model (Fig. 1), it is useful to reflect on the incentives and cultures of the three key stakeholders in university technology transfer: academic scientists, the TTO and university administrators, and firm/entrepreneurs. Academic scientists, especially those who are untenured, seek the rapid dissemination of their ideas and breakthroughs. This propagation of new knowledge is manifested along several dimensions, including publications in the most selective scholarly journals, presentations at leading conferences, and research grants. The end result of such activity is peer recognition through citations and stronger connections to the key social networks in academia. Such notoriety is the hallmark of a successful career in academia. Faculty members may also seek pecuniary rewards, which can be pocketed or plowed back into their research to pay for laboratory equipment, graduate students, and post docs. The TTO and other research administrators are also charged with the responsibility of protecting the university s intellectual property portfolio. At the same time, they attempt to generate revenue from this portfolio and,

29 6 DONALD S. SIEGEL AND PHILLIP H. PHAN therefore, actively seek to market university-based technologies to companies and entrepreneurs. This process takes place within the culture of a university, which may present competing interests related to the democratization of ideas, considerations of internal equity, bureaucratic procedures, and community interests. Some university administrators at public institutions may also understand that the Bayh-Dole Act embodied a desire to promote a more rapid rate of technological diffusion. Thus, these officials may be willing to extend the use of the university s technologies at a relatively low cost to firms. Companies and entrepreneurs are motivated by a desire to commercialize university-based technologies for financial gain. They wish to secure exclusive rights to such technologies, since it is critical to maintain proprietary control over technology resources that may constitute a source of competitive advantage. Firms and entrepreneurs also place a strong emphasis on speed, in the sense that they often wish to commercialize the technology as soon as possible so as to establish a first-mover advantage. These agents operate in an entrepreneurial culture. The stark disparities in the motives, perspectives, and cultures of the three key players in this process underscore the potential importance of organizational factors and institutional policies in effective university management of intellectual property. Thus it is not surprising that studies of the relative performance of university technology transfer have explored the importance of institutional and managerial practices. In the following section of the chapter, we review these papers. 3. REVIEW OF EMPIRICAL STUDIES ON THE EFFECTIVENESS OF UNIVERSITY LICENSING AND PATENTING Table 1 presents a review of empirical studies on the effectiveness of university technology transfer licensing. Many papers have focused on the role of the TTO. Some studies have been based on qualitative analysis of agents involved in these transfers. Such qualitative research has played a critical role in informing more accurate empirical analyses. This point was stressed in Siegel et al. (2003a), which was based on a combination of econometric analysis and field-based interviews. The authors derived three key stylized facts from their qualitative research. The first is that many academic scientists do not disclose their inventions as required by the Bayh-Dole Act.